Next has cut targets for the rest of the year after weak sales in August (Ian West/PA)
(Picture: PA Wire)NEXT today slashed profit forecasts after a tough summer, a worrying indicator for the rest of the high street and the wider economy.
The shares promptly crashed 8%, off 437p to 4887p as the City fretted about the prospects for what is widely regarded as one of the best businesses in Britain.
Chief executive Simon Wolfson offered some support for the Government’s tax cutting policies, but is plainly concerned about the borrowing costs they will incur.
He said: “Borrow and spend remedies can ultimately only treat the symptoms of inflation; they are not the cure. And there is a balance here, as we are already seeing, when a government borrows too much their currency will devalue, and stoke inflation next year.”
Profits for the year will be £20 million lower at £840 million and sales will fall 1.5%, rather than rise 1% as he earlier expected.
Since most clothing and homeware factories price their goods in dollars, costs are likely to continue rising next year. The weakness of the pound could make cost of living pressures even worse, warned Wolfson.
Half-year profits were up 16% to £401 million, a sign of Next’s resilience.
But Wolfson told the Standard that things “are more likely to get worse than better”. The present market and energy crisis is not as bad as either the 2008 credit crunch or Covid, he said.
Wolfson, a Tory peer, believes that while “we may see benefits from recent government measures” the wider picture is hard to call.
He thinks Prime Minister Liz Truss should focus on “the radical overhaul of our planning system, the intelligent relaxation of controls on economic migration, energy market reforms, the liberalisation of trade tariffs and more”.
He added: “Government might also review its own capital expenditure. If they can identify and cut capital projects that deliver little value, they will reduce borrowing and release desperately needed goods and services back into the economy (without prejudging it, HS2 would be top of our list for review).”
Rosalind Hunter at Simon-Kucher & Partners, said: “The forecast reflects the difficulty in navigating the current environment boards are facing across the country. Both sales and profit guidance has been lowered and its clear performance will be heavily reliant on external factors over the coming months. While their costs, mostly stated in US dollars, are now beginning to stabilise, the impact of the pound devaluing is clearly counteracting this.”
Russ Mould at AJ Bell said: “If Next is struggling, you can be sure the retail sector is in a real fix. Among the most consistent of retailers, the company has an excellent track record and is a highly transparent communicator with the market. The message it has to deliver is a worrying one.”
